NC Notes

I’ve written this before, but will repeat it for the sake of overemphasis: VCIC is the best work-related event I get to attend each year. Apologies to various party and conference organizers (including those at Daddy Thomson), but nowhere else do I learn as much nor stay consistently engaged. What follows are some assorted notes about the past few days, with a more comprehensive/insightful look to be published in an upcoming issue of Venture Capital Journal.

*** For the uninitiated: VCIC is not a business plan competition. Instead, it is a VC competition, in which teams of business school students role-play as venture capital partnerships. This might sound a bit Dungeons & Dragons, but participants take their work very seriously (OK, maybe that isn’t an apt distinction, but let’s move on).

Teams are presented with five business plans for real companies seeking VC funding. They then receive a 10-minute elevator pitch from each entrepreneur, conduct a short due diligence with each entrepreneur, write up term sheets for the deal they want to do, explain their decision making to the judges (actual VCs plus me) and are subjected to an occasionally-brutal grilling. Each team this year was required to do exactly one deal, in order to avoid last year’s dilemma of a winning team that – justifiably – opted to do zero transactions.

*** To qualify for the Finals, teams generally must get through both an internal competition at their own school, and also a regional. This year’s Finals contestants were from Cambridge (UK), Colorado, Duke, Harvard, Michigan, MIT, NYU, USC and Washington. Judges came from firms like Kleiner Perkins, Mohr Davidow, Grove Street Advisors, Synecor, SV Life Sciences, Atlas Venture, Aurora Funds, L Capital Partners, Parish Capital, Meritage Funds, Firelake Capital and more.

*** University of Washington was the big winner, which meant that it got a $10,000 prize and stuck with the post-competition bar tab. If you’ve ever wanted to see the spectacle of broke MBA candidates buying shots for loaded (multiple connotations) VCs, this is probably your only opportunity.

*** The Washington team was outstanding in every stage of the competition, with a poise that didn’t even break when the lights unexpectedly went out during its due diligence with an online dating platform provider. Every team, however, had individuals who clearly have a future in the VC business (including some who already have jobs lined up at places like DFJ).

*** The aforementioned dating platform provider generates much of its direct revenue from adult content, which brought up the following question: How many degrees of separation must a VC firm have from the blue business of its portfolio companies? This is particularly applicable for firms whose limited partners include religious organizations or public pensions. The consensus seemed to be just a single degree, which is why companies like Amp’d Mobile are considered acceptable.

*** Only one team’s term sheets included conditions that the portfolio company change its target market. The rationale wasn’t market size (new market is actually smaller), but rather that it would be a better fit for the current CEO and management team. Which leads to yet another question: Is it better to tell an entrepeneur that his business model is wrong, or better to tell him that he’s wrong for his business model? In this particular case, I would have chosen the latter. You might lose the deal, but it’s better than winning it and watching someone else enter the larger market.

*** I took Delta to Raleigh-Durham and American Airlines back to Boston. Delta was on-time, provided snacks and had an amusing flight attendant (“In case of a water landing, I will become your cruise director.”). AA was two hours late, had cramped seats and no snacks. Winner: Delta.

*** Because VCIC apparently didn’t satisfy my judging hunger, I’ll be in Lowell, Mass. tomorrow night to help judge the $125k Ignite Clean Energy business plan competition. Hope to see you there…